Financial emergencies can happen to anyone. Even people who think they have steady jobs and good health can be caught by surprise when their hours are cut or they become seriously injured. The two best ways to deal with a financial emergency is with financial preparation and financial responsibility.
1. Be proactive, not reactive
The best time to start preparing for the unexpected is well in advance. Because you have no idea what life has in store for you, you should have some money set aside at all times. A lot of people foolishly think they can rely on their relatives or their credit cards for emergencies. While borrowing from family does sometimes happen, and sometimes we do need to use credit for certain situations, you should not presume that those safety nets will always be there. If you get laid off from your job, chances are you won’t be able to live off your credit card for six months until you find a new job. And chances are equally good that your family won’t want to support you for that long, either.
2. Practice self discipline
Once you’ve made the decision to start a savings plan, stick to it! Think of the money you’re putting aside as already spent. Don’t dip into the emergency fund unless there really is an emergency. If you find yourself having to use emergency money for day-to-day items like gas, groceries or bus fare, there’s something wrong. Chances are you’re either spending too much of your income on unnecessary purchases, or you aren’t bringing in enough income in the first place. If the latter is the case, there might not be much you can do about it right away. The best thing is do whatever you can to cut back on your spending. Clip coupons, carpool with coworkers, ask for a raise… basically, refer back to number one. You should also try to store several months worth of mortgage payments in a bank account to help you bridge the gap if you are a home owner.
Remember, while you don’t have much control over the problems life gives you, you do have control over how you handle them. If you need help, talk to a trusted financial adviser or take advantage of a free financial counseling service.
Please note that we are not financial advisors and the information contained herein is just the opinion of the writer. We always recommend that people seek professional financial advice from licensed professionals.
Below is a short video produced by Vanguard that discusses preparing for a financial emergency. Check it out too.